PPF 7800 deficit drops by £8.4bn

The aggregate deficit of the 5,588 schemes in the PPF 7800 Index decreased by £8.4bn in June.

The deficit figure was £85.6bn at the end of last month, after having stood at £94.0bn at the end of May. The PPF has also calculated that the funding level for the schemes in the index increased from 94.5 per cent at the end of May to 94.9 per cent.

Within the index, total scheme assets amounted to £1,606.9bn. This represents a decrease of 0.3 per cent over the month and an increase of 4.6 per cent over the year. Total scheme liabilities were £1,692.5bn at the end of June 2018, a decrease of 0.7 per cent over the month and an increase of 2.1 per cent over the year.

There were 3,633 schemes in deficit and 1,955 schemes in surplus at the end of June, with the aggregate deficit of all schemes in deficit estimated to have decreased to £200.2bn from £206.4bn in May. The total surplus of schemes in surplus increased to £114.6bn from £112.3bn.

Conventional 10, 15, and 20 year gilt yields rose by 6, 4 and 4 basis points, respectively, while index-linked 5-15 year gilt yields rose by 4 basis points over the month. Assets decreased by 0.3 per cent in June 2018, reflecting the impact of lower bond and UK equity prices.

BlackRock head of UK strategic clients, Andy Tunningley, said that the stubbornly low gilt yields were showing few signs of rising significantly and providing schemes with any relief and warned of potential volatility on the horizon.

“Looking back over the first half of the year, funding levels are up around 1 per cent, driven by an increase in asset values. Whilst these are small overall gains, schemes should make the most of the sunny outlook while it lasts,” he said.

“While equity markets remained buoyant in June, escalating geopolitical tensions and uncertainty over the viability of the latest Brexit proposal could cause unexpected downpours in the shape of equity market volatility which may remove funding level gains over the last year.”

Aviva Investors investment strategist for global investment solutions, Boris Mikhailov, said that although the improving funding position of the index over the last couple of years had allowed schemes to pursue de-risking strategies, more could be done to increase certainty of meeting pension promises.

“According to the 2018 Mercer European Asset Allocation Survey, only 34 per cent of UK pension schemes have formal de-risking triggers in place,” he said.

“The remaining pension schemes have an informal approach. This means that opportunities to bank unexpected improvements in funding positions by taking the risk off the table could be missed.”

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